Specific situations and deferred tax

In this lesson

1. 0:00 Deferred tax on asset revaluations
2. 1:18 Worked example: calculating revaluation deferred tax
3. 2:33 Splitting deferred tax between OCI and profit or loss
4. 3:30 Deferred tax implications of share option schemes
5. 4:39 Worked example: share options and deferred tax asset
6. 7:07 Recognising deferred tax assets from unused tax losses

About this lesson

By mastering these scenarios, you'll be able to handle complex deferred tax questions in your exam and apply the principles to real business situations. The lesson starts with asset revaluation, where the difference between the revalued carrying amount and the tax base creates a temporary difference. You'll learn that deferred tax on revaluations must be split between two elements: the portion relating to the revaluation itself (recorded in other comprehensive income) and the portion that would have arisen anyway (recorded in profit or loss). A worked example shows how to calculate the deferred tax liability and allocate it correctly across the financial statements. Next, you'll explore share option schemes, where employees receive options to purchase shares at a fixed price. The key is understanding that a deferred tax asset arises because the company will receive a tax deduction when the options are exercised, based on the intrinsic value at that date. The deferred tax is again split between profit or loss and equity to match where the share option expense itself is recognised. The lesson includes a detailed calculation showing how to work out the deferred tax asset and the corresponding entries. Finally, you'll consider unused tax losses and the strict conditions for recognising a deferred tax asset. You'll learn that recognition is only appropriate if there's strong evidence the company will generate sufficient future taxable profits to utilise those losses, and you'll explore the key factors to assess, including whether losses stem from one-off events and whether tax planning opportunities exist. This lesson is essential for ACCA papers covering deferred tax and prepares you for both objective tests and case study scenarios.

Duration: 8m